T-Bills vs. T-Notes vs. T-Bonds: What's the Difference?

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T-bills, T-notes and T-bonds are all U.S. Treasury securities, which are debt the federal government sells to fund its operations. They differ mainly in how long they last and how they pay you. Treasury bills mature in one year or less and pay no periodic interest: you buy them below face value and receive the full face value at maturity. Treasury notes mature in 2 to 10 years and Treasury bonds in 20 or 30 years. Both pay a fixed interest payment every six months and return face value at maturity. All three carry the same backing from the U.S. government. The practical differences are how much the price can swing before maturity, how yields compare along the maturity range, and how well each one fits a given time horizon.

Are “Treasuries” and “Bonds” the Same Thing?

“Treasuries” is the umbrella term for marketable debt issued by the U.S. Department of the Treasury. Bills, notes and bonds are the three main types under that umbrella. In casual use, people often call all of them “Treasury bonds” or just “bonds,” and financial news uses “the bond market” for the whole group. Strictly speaking, a Treasury bond is only the 20-year or 30-year security.

So “T-bills vs. Treasuries” is not a contrast between two different things. A T-bill is a Treasury, and so is a T-note. The real comparison is between the maturities and payment structures inside the Treasury family. A comparison of Treasuries with other bonds, such as corporate or municipal bonds, is about the issuer: the U.S. government compared with a company or a local government. That changes default risk and tax treatment.

Treasuries play a large role well beyond individual portfolios. They are how the federal government raises money to cover spending and manage the national debt. Individuals, pension funds, banks, foreign central banks and governments hold them as a low-risk store of value and a source of interest income. Their yields also serve as reference points for pricing other loans and bonds.

The Three Core Differences

Maturity

Maturity is the defining difference, and it drives most of the others.

• Treasury bills: one year or less. Common terms include 4, 8, 13, 26 and 52 weeks.
• Treasury notes: 2, 3, 5, 7 and 10 years.
• Treasury bonds: 20 and 30 years. These are sometimes called “long bonds.”

The original term describes the security when issued. A 30-year bond issued many years ago that now has three years left trades much like a three-year note in terms of rate sensitivity, even though it is still legally a bond. When you buy on the secondary market, the remaining time to maturity matters more than the label.

How Interest Is Paid

T-bills are discount securities. They have no coupon. You pay less than face value up front and receive face value at maturity, and the difference is your interest. Because of this structure, T-bills are often described as zero-coupon instruments.

Notes and bonds pay coupons. Each has a fixed interest rate, stated as a percentage of face value, paid in two equal installments per year. At maturity you receive the final coupon plus the face value.

This difference matters for cash flow. A T-bill gives you nothing until it matures. A note or bond gives you a predictable deposit twice a year, so notes and bonds suit investors who want regular income, while bills suit money you plan to hold briefly and then use or reinvest.

Yields

Longer-term Treasuries usually yield more than shorter ones, because investors typically want extra compensation for locking up money for longer and for taking more price risk. This is a tendency, not a rule. The relationship between yields across maturities is called the yield curve. When short-term yields rise above long-term yields, the curve is “inverted,” and in that situation a T-bill can yield more than a 10-year note or a 30-year bond. Market participants watch the curve’s shape closely because it reflects expectations about interest rates, inflation and economic growth.

Yields on all Treasuries are set by the market, first at auction and then by trading. Treasuries generally yield less than corporate bonds of similar maturity, because corporate issuers can default and investors demand more interest to take that risk.

How the Payments Work: Examples

The examples below are hypothetical and use round numbers to show the mechanics. They are not current rates.

Example: A T-Bill Bought at a Discount

Suppose you buy a 26-week T-bill with a $1,000 face value for $980. At maturity you receive $1,000. Your $20 gain is the interest, earned over about half a year.

• Return on money invested: $20 ÷ $980 ≈ 2.04% for the half year
• Roughly annualized (ignoring compounding): about 4.1%

Treasury quotes bills using a “discount rate” computed on face value and a 360-day year, which comes out lower than the return on what you actually paid. For comparison with notes, bonds or savings accounts, the investment rate (also called the bond-equivalent or coupon-equivalent yield) is the more useful number, because it is based on the purchase price and a 365-day year.

Example: The Payment Schedule on a 5-Year Note

Suppose you buy a 5-year Treasury note with $10,000 face value and a 4% coupon at a price of exactly $10,000.

• Annual interest: 4% × $10,000 = $400
• Paid as two installments: $200 every six months
• Number of payments over five years: 10
• Total interest over the life of the note: $2,000
• Final payment at maturity: the last $200 coupon plus the $10,000 principal

The payment dates follow the issue and maturity dates. A note maturing on May 15 pays interest each November 15 and May 15 until maturity. The same structure applies to a 30-year bond, except there are 60 semiannual payments.

Example: Coupon vs. Face Value

The coupon is always a percentage of face value, not of the price you paid. A $500 bond with a 5% coupon pays $25 per year, split into two $12.50 payments, whether you bought it for $480, $500 or $520.

Are Treasury Notes Sold at a Discount?

Sometimes, but not in the same way as bills. A T-bill is always priced below face value because the discount is its only source of return. A note or bond earns most of its return from coupons, and its price can be below, at or above face value.

At an auction for a new note or bond, Treasury sets the interest rate based on the auction’s resulting yield, rounded down to the nearest one-eighth of a percentage point. Because the rate is set at or slightly under the yield, a new note typically prices at or a little below face value. When Treasury reopens an existing security, selling more of it with the coupon already fixed, the price can come out at a discount or a premium depending on where yields are.

On the secondary market, any note or bond can trade at a discount (when market yields are above its coupon) or a premium (when market yields are below it). If you buy at a discount and hold to maturity, you collect the coupons plus the difference up to face value. If you buy at a premium, part of the coupon income is offset by receiving only face value at maturity.

Price Risk Before Maturity

All three types have the same credit quality, so the risk that separates them is interest rate risk: the chance that the price falls because market rates rise after you buy. A fixed coupon becomes less attractive when new securities pay more, so the older security’s price drops until its yield matches the market. When rates fall, the reverse happens and existing securities gain value. For the full mechanics, see why bond prices fall when interest rates rise.

The longer the remaining maturity, the larger the price change for a given move in yields. Here is a hypothetical illustration, assuming each security has a 4% coupon, is bought at face value of $100, and market yields for its maturity then rise immediately to 5%:

• 26-week T-bill: the price drops only a small fraction of a dollar, and the bill reaches face value within months.
• 2-year note: the price falls to about $98.12, a loss of roughly 1.9%.
• 30-year bond: the price falls to about $84.55, a loss of roughly 15.5%.

The same logic runs in reverse. If yields fell from 4% to 3%, the 30-year bond would gain far more than the 2-year note, and the T-bill would barely move.

Two points follow:

1. Holding to maturity removes the price risk on that security. You receive face value at maturity no matter what happened to rates in between. The cost is opportunity: if rates rose, your money stayed locked into the lower coupon.
2. Selling early turns price changes into real gains or losses. If you may need the money before maturity, a long bond exposes you to a larger possible loss than a bill or a short note.

Inflation is the other risk that grows with maturity. A fixed coupon buys less over time if prices rise faster than expected, and a 30-year bond is exposed to three decades of that. Historical figures on U.S. inflation by year show how much the rate has varied over periods as long as a bond’s term.

Treasury Bills in Detail

T-bills are the government’s short-term borrowing tool and the closest thing to cash in the Treasury lineup. Key features:

• Terms of one year or less, auctioned on a regular schedule.
• Sold at a discount in $100 increments, with a $100 minimum.
• No coupon; the full return arrives at maturity.
• Very low price sensitivity to interest rates because of the short term.
• Frequent maturity means frequent reinvestment. If rates fall, the next bill you buy pays less. That reinvestment risk is the trade-off for low price risk.

Investors use bills for money they will need soon, as a parking place for cash between investments, or as a near-cash portion of a portfolio. Institutions use them heavily for liquidity management.

Treasury Notes in Detail

Notes sit in the middle of the curve. Key features:

• Sold in $100 increments at auction, with prices that can land below, at or above face value.
• Moderate price sensitivity, rising with maturity: a 10-year note moves considerably more than a 2-year note.

Why the 10-Year Note Matters

The 10-year note is the most closely watched Treasury. Its yield is a reference point across finance: lenders look to it when setting long-term borrowing costs, and 30-year fixed mortgage rates tend to track it. When news reports cite “the 10-year yield,” they mean this note.

Demand for the 10-year comes from retail investors, institutions, central banks and foreign governments, which gives it a deep, active market. Investors often add it to reduce portfolio volatility. In recessions or periods of market stress, buyers tend to move into it, which pushes prices up and yields down. In expansions, some investors sell it to move money into higher-yielding or growth assets. These shifts are one reason its yield is read as a signal about economic expectations, alongside moves between bull and bear markets in stocks.

Treasury Bonds in Detail

Bonds are the longest Treasuries. Key features:

• Sold in $100 increments at auction; also traded on the secondary market through banks and brokers.
• Usually the highest yields in the Treasury lineup, reflecting the long commitment, though an inverted curve can change that.
• The largest price swings when rates move, as the example above shows.

Investors use bonds to lock in a fixed income stream for many years, to fund long-range goals such as retirement or education, and to diversify stock holdings, since long Treasuries have often risen when investors seek safety. Their stability comes from the payment stream and credit quality, not from the price. A 30-year bond’s market value can fall sharply if rates climb.

If you hold a bond in TreasuryDirect and want to sell before maturity, you cannot sell it there directly. You transfer it to a bank or broker, and you must hold the security for at least 45 days before it can be transferred. The sale price will depend on market yields at that time and may be above or below what you paid.

How to Buy T-Bills, T-Notes and T-Bonds

You can buy Treasuries directly from the government through TreasuryDirect, or through a bank or brokerage account. Brokers let you bid at auction and also buy existing securities on the secondary market, and they make it easier to sell before maturity. TreasuryDirect handles new issues only.

Tax Treatment

Tax rules are essentially the same across bills, notes and bonds:

• Federal income tax applies to the interest.
• State and local income tax does not apply to the interest.
• You receive a Form 1099-INT reporting the interest. For a T-bill, the interest is the difference between the price paid and face value, reported in the year the bill matures. For notes and bonds, coupon interest is reported in the year you receive it.
• For securities held in TreasuryDirect, you can elect federal tax withholding on your interest, up to 50%.

Selling a note or bond before maturity can produce a capital gain or loss, which is taxed separately from the interest. The state and local exemption gives Treasuries an edge over fully taxable alternatives for residents of high-tax states, and that edge grows with the state’s tax rate.

Buying Treasuries Through Funds

Instead of holding individual securities, you can buy a mutual fund or exchange-traded fund that holds Treasuries. Dozens of Treasury ETFs exist, generally organized by maturity range: short-term bill funds, intermediate note funds and long-term bond funds.

Advantages:

• Diversification across many issues and maturity dates in one purchase.
• Liquidity: ETFs trade on exchanges throughout the day, so you can sell without dealing with transfers or bond pricing.
• Professional management of rolling maturing securities into new ones.

Drawbacks:

• Fees (expense ratios) reduce your return.
• No maturity date: a fund keeps replacing securities as they mature, so it never “returns face value.” A long-term Treasury fund can sit at a loss for an extended period after rates rise, while an individual bond held to maturity would eventually repay in full.

The fund’s maturity range tells you which category it behaves like. A short-term bill fund acts like T-bills, and a long-term fund carries the price sensitivity of 20- and 30-year bonds.

Treasury Note or CD?

Certificates of deposit are the most common alternative for safe, fixed-term savings. The comparison comes down to four points:

• Safety: Treasuries are backed by the U.S. government. CDs at insured banks are covered by FDIC insurance up to $250,000 per depositor, per insured bank, per ownership category. Above that limit, a Treasury has the stronger protection.
• Rates: either can pay more depending on market conditions and the bank. Compare a CD’s APY with the Treasury’s investment rate or yield for the same term, not with its coupon alone, and factor in taxes.
• Liquidity: a Treasury can be sold on the secondary market before maturity, at whatever price the market offers. A CD typically charges an early withdrawal penalty, often a set number of months of interest. Brokered CDs can be sold on a secondary market instead.
• Taxes: CD interest is taxable at the federal, state and local level. Treasury interest is exempt from state and local tax.

For an investor in a state with a meaningful income tax, a Treasury can come out ahead even when its stated yield is slightly lower than a CD’s. The comparison should be made on an after-tax basis.

Choosing Between Bills, Notes and Bonds

Credit risk is the same for all three, so the choice depends on three questions.

When do you need the money? Matching maturity to the date you need cash removes price risk. Money for a purchase in six months fits a 26-week bill. Funds for a goal five years out fit a 5-year note. A 30-year bond fits only if you are comfortable holding it for decades or accepting a market price if you sell early.

Do you want income or a lump sum? Notes and bonds pay twice a year. Bills pay only at maturity, though rolling bills repeatedly produces a stream of payments that changes with short-term rates.

What happens to your plan if rates change? Short-term holdings protect you from price drops but leave you exposed to falling reinvestment rates. Long-term holdings lock in a rate but can lose significant market value if rates rise. Some investors split the difference with a ladder: securities maturing at staggered dates (for example, one, two, three, four and five years), reinvesting each as it matures. This spreads both risks over time.

When rates fall, all three gain value, but not equally. Long bonds usually show the largest price increase because their fixed payments run for decades. Notes rise less, with the 10-year typically showing a noticeable move. Bills change only slightly because they mature so soon. When rates rise, the order of the losses is the same.

FAQs

The Bottom Line

For savers and investors choosing a Treasury, the deciding factor is when you need the money, since all three share the same government backing. Bills suit cash needed within a year, notes fit goals a few years out, and bonds make sense only if you can hold for decades or accept a possibly lower price if you sell early. Matching maturity to your timeline, or building a ladder, limits both price and reinvestment risk.